Verizon Communications Inc. plans to sell debt for the first time since March 2009 as the second- largest U.S. phone company seeks to pay back $3.7 billion of commercial paper.

The company plans to sell 3-year fixed- and floating-rate notes and 5-, 10- and 30-year bonds, New York-based Verizon said today in a regulatory filing that didn’t specify the size of the sale. The bonds will be issued as soon as today in benchmark size, typically at least $500 million, said a person familiar with the transaction.

Verizon is planning the debt sale after agreeing in January to acquire Terremark Worldwide Inc. for $1.4 billion, a cash deal which Chief Financial Officer Francis Shammo said would be funded in part with commercial paper and “capital markets transactions.” Returns on debt from telecommunications companies are beating overall investment-grade corporate bonds this year, as relative yields for the borrowers tumble.

“The market conditions are ideal right now, especially with the Verizon name,” said William Larkin, a fixed-income portfolio manager in Salem, Massachusetts, at Cabot Money Management, which oversees $500 million. “It’s all based off the cheap cost of capital.”

The extra yield investors demand to own debt from telecommunications companies instead of Treasuries fell to 154 basis points yesterday from 168 basis points, or 1.68 percentage points, at the end of 2010, according to Bank of America Merrill Lynch index data. That compares with a spread of 153 basis points on overall corporate debt. The difference in spread between the two indexes was 16 basis points as recently as November.

Telecom Companies Outperform

Debt from telecommunications companies, including AT&T Inc., the largest U.S. mobile-phone carrier, and Deutsche Telekom AG, has gained 1.6 percent this year, compared with the 1.45 percent return on all investment-grade bonds.

“Telecom has been pretty strong,” Larkin said. “People have been looking for that safety.”

Gilead Sciences Inc., Volkswagen AG and Caterpillar Inc. are also planning debt that is set to be priced today, after sales of $23.5 billion yesterday. The amount marked the most since February 2009, when issuance reached $24.9 billion, according to data compiled by Bloomberg.

Verizon’s $3.7 billion of commercial paper outstanding, short-term borrowings that typically mature in 270 days or less, carries an average interest rate of 0.4 percent, according to today’s filing. Any remaining proceeds from the sale may be used for general corporate purposes.

Paying for Terremark

Verizon plans to complete its offer for Terremark this quarter, as the company expands its business of helping companies store their data in the so-called cloud, the server computers maintained by other companies that provide access to electronic records and software.

Acquiring Terremark, which adds corporate and government customers for Verizon, is part of a broader strategy to make information from corporate data to music available to customers across devices and locations, Verizon said in a Jan. 27 statement.

Verizon sold $2.75 billion of 10- and 30-year debt in March 2009, Bloomberg data show.

The company’s $1.75 billion of 6.35 percent, 10-year notes priced at 98.52 cents on the dollar to pay a 387.5 basis-point spread, Bloomberg data show. The bonds traded yesterday at 115.2 cents on the dollar to yield 4.1 percent, or 77.2 basis points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Today’s notes may be rated A3 by Moody’s Investors Service and A- by Standard & Poor’s, said the person familiar with the transaction, who declined to be identified because terms aren’t set.